Diagnostic Tests for Homoskedasticity in Spatial Cross-Sectional or Panel Models

42 Pages Posted: 27 Oct 2020

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University - Maxwell School of Citizenship and Public Affairs; IZA Institute of Labor Economics; Syracuse University - Center for Policy Research

Alain Pirotte

ERMES (CNRS), Université Panthéon-Assas Paris II; INRETS-DEST

Zhenlin Yang

Singapore Management University

Abstract

We propose an Adjusted Quasi-Score (AQS) method for constructing tests for homoskedasticity in spatial econometric models. We first obtain an AQS function by adjusting the score-type function from the given model to achieve unbiasedness, and then develop an Outer-Product-of-Martingale-Difference (OPMD) estimate of its variance. In standard problems where a genuine (quasi) score vector is available, the AQS-OPMD method leads to finite sample improved tests over the usual methods. More importantly in non-standard problems where a genuine (quasi) score is not available and the usual methods fail, the proposed AQS-OPMD method provides feasible solutions. The AQS tests are formally derived and asymptotic properties examined for three representative models: spatial cross-sectional, static or dynamic panel models. Monte Carlo results show that the proposed AQS tests have good finite sample properties.

Keywords: adjusted quasi-scores, fixed effects, heteroskedasticity, incidental parameters, martingale difference, non-normality, short dynamic panels, spatial effects

JEL Classification: C12, C18, C21, C23

Suggested Citation

Baltagi, Badi H. and Pirotte, Alain and Yang, Zhenlin, Diagnostic Tests for Homoskedasticity in Spatial Cross-Sectional or Panel Models. Available at SSRN: https://ssrn.com/abstract=3718183 or http://dx.doi.org/10.2139/ssrn.3718183

Badi H. Baltagi (Contact Author)

Syracuse University - Maxwell School of Citizenship and Public Affairs ( email )

400 Eggers Hall
Syracuse, NY 13244
United States

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Syracuse University - Center for Policy Research ( email )

Syracuse, NY 13244
United States
315-443-1630 (Phone)
315-443-1081 (Fax)

HOME PAGE: http://www.maxwell.syr.edu/cpr_about.aspx?id=6442451316

Alain Pirotte

ERMES (CNRS), Université Panthéon-Assas Paris II ( email )

12 Place du Panthéon
Paris, Cedex 5, 75005
France

INRETS-DEST

23 rue Alfred Nobel
Champs sur Marne, 77420
France

Zhenlin Yang

Singapore Management University ( email )

School of Economics
90 Stamford Road
Singapore, 178903
Singapore
65 68280852 (Phone)
65 68280833 (Fax)

HOME PAGE: http://www.mysmu.edu/faculty/zlyang/

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